Small-business wages grew in February

Hourly earnings and weekly hours worked at small businesses improved last month, according to payroll giant Paychex, while hiring dipped slightly during the pandemic.

The Paychex | IHS Markit Business Employment Watch, released Tuesday, showed wages trending so far in 2021. Both the amount of hourly earnings and weekly hours worked saw two consecutive months of growth. Hourly earnings growth rose 2.91 percent, while hours worked growth improved 0.37 percent. Weekly earnings growth also rose above the 3 percent mark for the first time since Sept. 2020. The Small Business Jobs Index from Paychex and IHS Markit moderated slightly by -0.03 percent to 93.97.

The report comes at a time when the economy is continuing its slow recovery from last year’s economic crisis caused by the COVID-19 pandemic. While many sectors of the economy have yet to recover and unemployment remains high in many parts of the country, small businesses are getting help from the relief packages passed by Congress last year, including December’s revival of the Paycheck Protection Program, as the Biden administration works to get a $1.9 trillion stimulus package passed before enhanced unemployment benefits expire on March 14.

Paychex office

“While the overall barometer in the index is pretty flat, which it’s been for several months, there’s some underlying strength under the hood,” said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. “I’m pretty optimistic because for the last couple of months now, we’ve seen an increase in hours worked, and it looks like wages are starting to go up again. There are probably several factors driving the wage piece. Clearly there are a lot of minimum wage increases that went in Jan. 1. When you look at it by the quintile and by the industry, I think there is some underlying strength. Things have stabilized clearly, and hopefully it’s laying the base to snap back pretty nicely in the spring, which a lot of folks are predicting.”

Fifteen of the 20 states analyzed in the report indicate growth in weekly hours worked in February. The South ranked in first place among regions in terms of small business employment growth, but it was in last place in earnings and hours worked growth. The Northeast ranked in last place among regions in terms of small business employment growth, but in first place on earnings and hours worked growth. Florida and Texas remained the top-ranked states for job growth, keeping a wide lead with index levels slightly below 97. Tampa’s jobs index surged 0.90 percent in February, making it the top-ranked metropolitan area for small business job growth.

Manufacturing showed the most substantial job growth increase among the industries tracked on the survey in February, rising 0.36 percent. The construction industry has remained a bright spot throughout the pandemic, and February marked the construction industry’s tenth month in a row as the top-ranked sector. The leisure and hospitality industry saw major cutbacks last year, but avoided further declines in February, though it remained down more than 11 percent from last year.

“Clearly you see weakness in the restaurant and hospitality sector, but it looks like that has bottomed a little bit,” said Fiorille. “That has been a big drag on the index for the past year, while the other sectors have either been flat or growing a little bit. If we can get that big subsector to stabilize and start going up, I think the overall trend will be very positive.”

As Congress and the Biden administration continue to work on the latest stimulus package, and the IRS rolls out guidance on the Paycheck Protection Program and the Employee Retention Tax Credit, as it did Monday (see story), accountants should keep a close watch on what’s happening for their small business clients, both at the federal and state levels. That includes any minimum wage increase, which was included in the version of the stimulus package by House Democrats on Saturday, but is likely to be left out of the Senate version because of objections from the Senate parliamentarian and the need for Democrats to pass the legislation using a budget reconciliation maneuver in the narrowly divided Senate, where Vice President Kamala Harris will probably need to cast a tie-breaking vote.

“Clearly the things that are coming out of Washington, specifically the stimulus package, as well as additional guidance released last night on things that came out in the prior stimulus package — for instance, more information on how the employee retention credit and the PPP loans — interplay between what small businesses can do as far as getting tax credits, is very complex,” said Fiorille. “There’s lots of confusion out there still on how businesses can work with CPAs on trying to execute that. A lot is going on there as well as a lot of additional state stuff. Depending on what state you’re in, or even more if you’re in multiple states, a lot of different rules and regulations are coming out fast and furious.”

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